Asian stocks rally as traders pare rate bets ahead of jobs data

On September 4, stocks experienced a rally, while government yields faced a setback following comments from top Federal Reserve officials. These remarks lessened concerns that the central bank would raise interest rates during their September meeting. However, traders remained cautious, with oil prices climbing once more as United States and Iran engaged in a conflict.

Recent events have unsettled markets due to the Middle East crisis, which caused crude oil prices to surge by around 10 percent, sparking inflation worries and prompting central banks to consider interest rate hikes. Consequently, the cost of government debt reached multi-decade highs, with analysts also pointing to a surge in corporate borrowing for artificial-intelligence investments and concerns about government finances.

The panic somewhat subsided after US President Donald Trump announced that the latest bombing campaign against Iran would be brief. However, comments from New York Fed boss John Williams and governor Christopher Waller brought the most relief. Waller mentioned on September 3 that his call for the September 16 policy decision would be based on incoming data, suggesting that a softer reading would incline him towards maintaining the current policy rate.

"My decision on the appropriate stance of policy will be heavily influenced by what we learn about August inflation," Waller stated. "If there is continued progress toward our two percent goal, then I am willing to support holding the policy rate at its current level. But if inflation comes in hot, I would consider a rate hike."

Fed chief Kevin Warsh, who typically avoids offering guidance, had surprised markets on September 4 by seeming to suggest the bank was prepared to hike rates. All three major Wall Street indexes closed significantly higher, with the Dow and Nasdaq each gaining over one percent. In Asia, Hong Kong rose by more than two percent, while Seoul increased by more than one percent. Tokyo, Shanghai, Singapore, Wellington, Jakarta, and Taipei also saw substantial gains.

The yen strengthened against the dollar due to heightened expectations for a Bank of Japan interest rate increase in September and an official's hint that another rate hike might occur at the following meeting. This significant move against the dollar sparked debates about potential intervention, following the historic joint US-Japan intervention in July. The currency was trading at around 155.90 per dollar on September 4, having fallen to around 160.40 on September 1.